Question
Kuanysh's preferences over two goods are given by utility function u(x1, x2) = xx2, and the prices of good 1 and good 2 are
Kuanysh's preferences over two goods are given by utility function u(x1, x2) = xx2, and the prices of good 1 and good 2 are given by p and p2. In the remaining questions, Kuanysh is endowed with w = 90 units of good 1 and w = 30 units of good 2 (and has no income). 15. Consider price ratios 1 equal to 10,, *, 5 and 100. For which of these price P2 100' 5' ratios is Kuanysh a net buyer and for which he is a net seller of good 1? Rank these price ratios in terms of which of them are preferred to which by Kuanysh. 16. Based on question 15, if the price of good 1 increases, can: (a) Can a net buyer stay a net buyer? (b) Can a net buyer become a net seller? (c) Can a net seller stay a net seller? (d) Can a net seller become a net buyer? (e) Can a net buyer become better off? (f) Can a net buyer become worse off? (g) Can a net seller become better off? (h) Can a net seller become worse off?
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